Basic Economic Concepts & Definitions | AP Micro MV 2025-2026

Absolute Advantage

The ability to produce more of a good or service with the same quantity of inputs than another producer.

Opportunity Cost

The next best alternative foregone when a decision is made.

Ceteris Paribus

"All else equal"; used to isolate the effect of one economic variable.

Economic Costs

The sum of explicit and implicit costs.

Explicit Costs

Actual out-of-pocket expenses (e.g., wages, rent, materials).

Implicit Costs

The opportunity cost of using resources owned by the firm (e.g., owner's time, capital).

Accounting Profit

Total revenue minus explicit costs only.

Economic Profit

Total revenue minus explicit and implicit costs.

Resources (Factors of Production)

Inputs used to make goods and services: land, labor, capital, entrepreneurship.